How small bullion seller can strike gold against big banks

Canadian Bullion Services founder Danny Kroll , seen here with silver bars and coins at his Toronto offices

Tim Fraser/The Globe and Mail

Bryan Borzykowski

Special to The Globe and Mail

March 26, 2017September 19, 2012

Each week, we seek out expert advice to help a small or medium-sized company overcome a key issue.

Like many Canadians, Danny Kroll is hoping to cash in on the enduring popularity of gold. But rather than buying the yellow metal for himself, he's selling it to other commodity-hungry investors.

Mr. Kroll is the founder and operations manager of Toronto-based Canadian Bullion Services Inc., which sells physical bars of gold, silver, platinum and palladium to Canadian investors. Investors can take the bars home or pay to have them stored at CBS's facilities.

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Since the nine-employee company was created last year, it's found many of its buyers among those who want to own precious metals as an alternative form of currency; they believe that if the world's economic system were to collapse, they'd have physical bullion with which to buy goods.

Now, the company, which expects this year to double its 2011 revenues of about $2.5-million, wants to expand its reach to average investors who seek gold to diversify their portfolios.

The problem for the small company is that it is competing for the business from investors who are already buying their gold from the big, brand-name banks.

The company wants to grab some of that share, says Mr. Kroll, who claims his firm's fees are cheaper.

Few big-name institutions — including ScotiaMocatta, a division of Bank of Nova Scotia, and TD Canada Trust– actually sell physical bars; the other banks sell through exchange-traded funds. There are also other smaller companies selling physical bullion.

CBS doesn't have the marketing budget or the brand-name recognition to go up against bigger players to compete for bullion buyers or try to convert ETF investors. "The banks and brokerage firms have close to unlimited marketing dollars," Mr. Kroll says. "The challenge is in educating the public that there are alternatives."

Mr. Kroll has held seminars, invested in Internet marketing and set up booths at financial-related events. Yet, the company is still finding it tough to convince investors to buy from CBS. "They'd rather go through a name they know than one they don't," he says. "In our minds, it's obvious why people should buy with us, but it's not easy to get that across."

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The Challenge: How can the small player better go up against the big banks?

They're barking up the wrong tree. Small boutiques win on customer service, not on price. The big banks will crush them the minute they compete on price.

Where they can beat the bank, though, is on customer service. Deliver a much better experience, and then promote that. Banks shouldn't be their competitors – it will be very expensive to get those types of customers. Instead, focus more on taking market share from other independent bullion services providers.

Mr. Kroll also needs to expand his profile. He should get on TV shows, hold webinars and become a subject matter expert. Put the face to the brand. The biggest issue for these types of small companies is that investors are risk-averse. They want to know what the company is and who's behind it before investing. I would have the CEO all over the place.

They need to start small and then over-deliver like crazy. They may be getting rejected because it's too big of a risk to be giving these guys so much money.

Start with one transaction – maybe get an investor to buy one bar of gold – and show people that they're a good company to work with. As investors get more comfortable, they'll be willing to increase the amount they invest. The big challenge is always getting that first order, so make the first order small enough, reduce risk and then over deliver.

Consider building a board of advisers. Recruit people that others trust and add their names to the website. Someone who is seasoned with a recognizable name that's involved with the company will add more credibility to the business. Often people put their lawyers and accountants on the board. If the lawyer is from a big-name firm, that could lend more credibility.

I used to be the president of a company that distributed KTM motorcycles in Canada. When we brought them in, no one here knew the brand existed. We were going up against the large Japanese brands like Honda and Suzuki. We decided not to compete against the big companies – we didn't have the same scale and couldn't outcompete them on marketing.

Instead, we targeted dealers who were passionate, local and credible, who brought their own stamp of approval to our business. People would say that if this dealer in my area decided to pick this brand to sell, there must be something to it.

He could do something similar with advisers. Find credible advisers to sell the product. Also, get existing investors to talk about the company. They won't win by going head-to-head, so they have to lever credibility.

THREE THINGS THE COMPANY CAN DO NOW

Stop competing on price

Big banks can easily cut fees if they want. Trying to beat them on service is a smarter focus.

Become the known expert

Raise your profile to become the go-to expert on bullion-related issues. Get in front of the media, hold webinars and become a known expert. Raising your profile will help raise credibility and recognition.

Build a board

Another credibility builder: create a board of advisers with recognizable names. Promote them on the website and use their names to build brand recognition and credibility.

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An earlier online version of this story incorrectly stated that Bank of Nova Scotia was the only bank selling physical bars. This online version has been corrected.

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